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Prime Music's Apparent Weaknesses Are Actually Its Biggest Strengths

http://www.fool.com/investing/general/2014/06/13/prime-musics-apparent-weaknesses-are-actually-its.aspx

Adam Levy
June 13, 2014

Amazon.com (NASDAQ: AMZN) is giving away over 1 million MP3s to every Prime subscriber.

The company unveiled its Prime Music service on Thursday. The on-demand streaming service is severely limited in its early stages, offering just 5% of the catalog of other streaming services like Spotify or Apple's (NASDAQ: AAPL) Beats Music. Additionally, Prime Music doesn't offer an Internet radio feature like Pandora Media (NYSE: P).

At first blush, these obvious weaknesses may make it seem like Prime Music is doomed to fail. But what seem like Prime Music's biggest weaknesses may turn out to be its biggest strengths.

When 1 million is a small number
Amazon boasts over 1 million songs available for free streaming on Prime Music. While 1 million songs sounds like a lot (I certainly have listened to far fewer in my life), it pales in comparison to the competition.

Beats Music, Spotify, Rdio, and Rhapsody each sport around 20 million songs available for streaming. Pandora offers a similarly large set of songs from all the major recording labels.

Amazon's first stumbling block came with Universal Music Group. Although the company says it's in active discussions with Universal, the omission from the catalog at launch is painstakingly noticeable.

Additionally, the service omits songs released within the last six months. This might not be as big of a problem for a streaming service as omitting an entire label's catalog from the library, but it's something all of the competitors have.

Why a limited library may be an asset for Amazon
Amazon operates the second largest digital music store after Apple's iTunes.

The nascent digital download industry is already being disrupted by streaming services. Last year, digital download sales fell for the first time in history. In the first quarter of 2014, digital music sales declined 13.3%, according to Nielsen SoundScan.

Meanwhile, streaming services continue to grow. Pandora, for example, grew listener hours 28% and 30% in April and May, respectively. (Note: That comes after lifting monthly listener hour restrictions.) Overall, on-demand streaming plays climbed 34.7% in the first quarter of 2014.

Apple has responded to the rise of music streaming by joining it. Last year, the company launched iTunes Radio, and the company acquired Beats Electronics and its music streaming service last month. Apple hopes these efforts will mitigate the effect of declining digital sales.

Amazon's billion-dollar digital music store is similarly under attack, and Prime Music is its answer to the plethora of music streaming options.

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